UK mortgage lending activity at 30-year low
UK mortgage lending looks set to fall to its lowest level for more than three decades during 2011 with first-time buyers particularly hard hit, a trade body has warned.
Net lending, which strips out redemptions and repayments, is expected to total just £6bn next year, down from an estimated £9bn this year and £110bn in 2006, before the credit crunch struck, according to the Council of Mortgage Lenders (CML).
The group said the figure would be the lowest annual total since 1980, when the mortgage market was much smaller, while it would represent the most subdued growth since 1968.
The fall in lending levels is being driven by the ongoing shortage and cost of funds, as well as muted consumer demand.
The situation is being exacerbated by the fact that banks will have to repay the remaining £130bn they borrowed through the Government's Special Liquidity Scheme by the end of next year.
The CML added that the Financial Services Authority's ongoing mortgage market review continued to be a "major and unhelpful source of uncertainty" for the industry, as lenders did not know when it would issue firm rules, or whether it would modify its current "excessively risk-averse approach".
The CML said: "Over the short to medium term, lenders will need to manage some large-scale re-financing of wholesale funding. From April next year onwards, lenders will begin to have to repay the funding advanced through official support schemes.
"This is likely to limit the availability of credit to support mortgage lending next year, and beyond."
The group warned that with funding in short supply, the availability of mortgages for first-time buyers would remain "limited", as lenders were likely to continue to have only a "modest appetite" for lending to people with only small deposits.
Property sales are expected to remain broadly flat at just 860,000, down from levels of 1.6m before the credit crunch struck - a rate that suggests the average home will change hands only once every 20 years.
Meanwhile, figures revealed by the FSA yesterday show that the number of homes repossessed in the UK fell to a three-year low during the third quarter.
Around 9,145 people lost their property in the three months to the end of September, 8% fewer than in the previous quarter.
The level of homeowners who fell behind with monthly repayments also dropped for the seventh consecutive quarter, with 36,600 people getting into arrears of at least 1.5% of their outstanding mortgage, leading to a total of 345,600 being behind with repayments. Just under 8% of these have reached an agreement with their lender under which they are making only partial repayments.